Q&A with CenterPoint Properties' Brian McKiernan

Brian McKiernan has been with CenterPoint Properties since October 2006, where he coordinates, communicates and integrates development teams to maximize transaction volumes and land absorption. CenterPoint’s focused national strategy aids McKiernan, a senior vice president with the firm, in identifying and leveraging supply chain cost savings, resulting in maximized yields on transactions.

McKiernan will be a panelist at the upcoming CIP Industrial Summit on April 26, 2018. Hosted by REjournals, the 15th annual conference will look at the state of the industrial market in and around Chicago. We sat down with McKiernan to discuss what this segment of the market is looking at in 2018 and beyond.

REjournals: How healthy is the environment for speculative industrial facilities currently? Do you expect that to change anytime soon?

McKiernan: I think it’s fairly healthy, though market by market it varies. It’s definitely something that concerns us as certain markets get overbuilt. There’s no shortage of money, so anyone who wants to go out and build a project can pretty much do it. The phenomenon that we saw in the last cycle was people building everywhere and anywhere and tenants would either go out there or they wouldn’t. But now all the tenants are better at making fundamental decisions. So if you don’t spec the right building in the right place, it generally tends to suffer. Tenants are more disciplined now and that’s forcing landlords to be more disciplined. I think that spec has increased, but it’s not necessarily to the point where it really scares us. But it is something that we’re sensitive to.

REjournals: How does CRE investment in Chicago compare with the rest of the country?

McKiernan: Investing in the Midwest versus investing on the coasts—as well as rental growth and value growth—is something we struggle with as well. The coasts are where a lot of the investments are going on. How does the Midwest fit into that? Obviously we’re a Midwest company with a huge presence here so we’re still bullish on it. But that’s a constant debate internally and it’s not just a CenterPoint issue, that’s every fund and every REIT.

REjournals: Where are the hot submarkets in the Chicago metro right now? Do you see any submarkets transforming from greenfield to infill development?

McKiernan: The O’Hare market really has a lot of redevelopment. You see that with Bridge or Panattoni or what we at CenterPoint are doing in that market, we’re pricing as buildings are coming down and being redeveloped. That’s the market that’s been very active and there’s a lot of spec, but I think there’s been a lot of demand, so it’s been somewhat balanced. It’s somewhat limited by being infill to ever getting too hot in terms of speculative product.

I have concerns about I-80, which is a market we’re big in. That tends to get overbuilt and it has a lot of product, but I don’t think everything is equal, so there are some winners and some losers. If you have the right building in the right place and it’s really functional—if you’re off-center on any of those things it suffers, so that’s something we’re looking at.

Going north, the Lake County and southeast Wisconsin area has been pretty strong. With Foxconn and Pleasant Prairie right across the Illinois border, there’s a lot of product that’s about to come out of the ground. That may be getting close to overbuilt, but to date that’s been really strong and I think that first stop past Illinois strategy is working.

REjournals: Where do you see last-mile logistics facilities headed in the future?

McKiernan: This is one everybody struggles with. What do e-commerce and last mile really mean? I almost look at it as less of a geographic title and more of a supply chain strategy. It could be next to a FedEx facility in Joliet because they can get into that facility quicker, it may be next to Willow Springs, it could be close to downtown Chicago for distribution. So I think we’re really trying to evaluate what is last mile and how do you invest around it and how do you develop around it.

And keep in mind that the retailers and what we call the beneficial cargo owners—the Home Depots and the Amazons of the world—a lot of those companies are still evolving their strategies. Maybe Amazon is ahead of everyone, but even look at what they’re doing, that’s evolving. Everyone is just trying to determine their strategy and where they need to be and why they need to be there. People like to talk about it, but it’s hard to invest around. We’re looking at what the drivers of that are. Is it the shipping facilities, is it population? Is it the attributes of the building, heavy auto parking or heavy trailer parking? What are those drivers? I don’t know if anyone in the business has that answer.

REjournals: Where do you see Chicago’s industrial sector headed in 2018?

Brian McKiernan: We here at CenterPoint are pretty bullish and we’re pretty comfortable with the fundamentals. We see tenants making good decisions for good reasons and I look at the economic measures as still very reasonable. So I think it’s still going to be strong and growing. With e-commerce, there’s a net loser and net winner; retail is somewhat losing and industrial is the beneficiary of that. I think all those things together mean a good 2018.